Ross Levine is Professor of Economic Analysis and Policy at Berkeley Hass. He write in this article that in a time of increased competition and pressures from the pandemic, it might be a simple assumption that firms might reduce their focus on Corporate Social Responsibility. Recent analysis however shows that companies are using Corporate Social Responsibility as a profitable strategy to build loyalty and trust.
The paper (Competition Laws, Ownership and Corporate Social Responsibility by Ding, Levine, Lin, Xie 2020) is based on research analysing 14,000 firms across 47 countries between 2002 and 2015. The findings established that higher levels of competition boosts corporate social responsibility. The results were consistent across various firms, industries and countries.
“Our empirical findings are inconsistent with the traditional view that competition induces firms to focus on short-term survival and therefore forgo investments that pay off in the long run,”
Ross Levine
One theory for these findings is that firms engage in Corporate Social Responsibility (CSR) when they have implicit agreements with stakeholders and are seeking to signal the companies trustworthiness to shareholders, employees and customers.
Establishing and sustaining stakeholder trust reflects the perception that the firm will honour its commitments. It enables the firm to connect its values to the stakeholder groups (workers, suppliers, customers and the community more broadly).
Common Areas of Corporate Social Responsibility growth
- Worker Health and Safety
- Environment, Climate Change and Renewable Energy
- Workers Rights
In a related paper, Levine et al. found share prices of firms that scored higher on CSR before COVID performed significantly better during the pandemic than those that scored low. This indicates that that CSR acted as a kind of perception buffer from those wild market swings. Theory expounds that CSR activities generates greater loyalty among stakeholders, who may be more willing to stick around in tough times.
Key Takeaways
- CSR signals that a firm is trustworthy and becomes a profit enhancing activity
- Those firms that have engaged in CSR built much stronger relationships with the community and this acted as a perception buffer providing less impact on share prices.
DIGEST of an article from Berkeley Haas Faced with competition, companies double down on corporate social responsibility By Morgan Foy and Laura Counts Published: 17th November 2020 https://newsroom.haas.berkeley.edu/research/faced-with-competition-companies-double-down-on-corporate-social-responsibility/ From Journal SSRN Competition Laws, Ownership and Corporate Social Responsibility By Ross Levine, Wenzhi Ding, Chen Lin, Wensi Xie https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3688398